BAD FAITH DAMAGES
Consequential damages for an insurer's bad faith denial of a claim remain alive and well in New Jersey, but only if an insured seeks them. In the case of Bello v. Merrimack Insurance Company, the insured was awarded consequential damages far exceeding the amount of his policy coverage. In Wells Fargo v. Cumberland Mutual, the plaintiff-mortgagee did not seek consequential damages after securing coverage on a motion for summary judgment following an unfounded denial of its claim.
The homeowner in Bello, made claim for storm damage occurring on March 8, 2008 that knocked down part of a stone retaining wall that protected his home from the Delaware River. The carrier initially denied the claim as wind damage. The insured petitioned Merrimack's internal appeals panel which reversed the decision and found coverage. The carrier then tried to minimize the amount of the damages, obtaining a builder's estimate to replace the stone wall with concrete block, and attempting to take 40-50% depreciation. The homeowner refused and the carrier demanded appraisal. The Court ordered the homeowner to participate in the appraisal, but the carrier's appraiser estimated damages far in excess of the policy limits, so the carrier paid the $100,750 face amount of the policy in December 2009. The homeowner continued with his lawsuit because by the time of the payment, the wall had further deteriorated and the cost to repair had increased from the initial estimate of $85,000 to approximately $425,000 for the wall and $200,000 to correct erosion of the backyard.
A jury in Burlington County awarded Bello $624,023 in damages. The Court refused to mold the verdict to give credit to Merrimack for the amount of its payment, since Bello had spent some money to perform interim repairs and the jury heard all of that testimony. The Court also awarded Bello counsel fees of approximately $200,000. Merrimack has filed an appeal.
Bello did NOT retain a Public Adjuster. Consider the time line: occurrence (March 8, 2008); grant of coverage by appeals panel (October 2008); payment of policy limits after aborted appraisal (December 2009); trial verdict (February 25, 2011); appeal (pending); damages (continuing). Cost to insurer: $924,773, plus post-judgment interest, plus its own attorney's fees in the face of a $100,750 policy.
The same defense counsel continued the practice of carrier delay on behalf of Cumberland Mutual in a claim by a mortgagee under a homeowner's policy. In Wells Fargo Home Mortgage v. Cumberland Mutual, the homeowner refinanced an existing mortgage with a loan of $268,000 and borrowed an additional $32,000 for "home improvement." The homeowner shortly thereafter demolished the dwelling and then abandoned the property, leaving a vacant lot. The mortgagee made claim on February 21, 2008 to Cumberland which denied the claim on October 31, 2008, contending that the mortgagee failed to report an increase in hazard by reason of the intended "home improvement" contending that the mortgagee should have known that the insured borrower intended to demolish the structure. The Court ruled in favor of coverage on cross-motions for summary judgment on November 13, 2009, finding that there was no credible evidence that the mortgagee had any knowledge (actual or constructive) that the homeowner intended to demolish the structure. The parties agreed on the ACV of the building at $133,004 and the Court entered an order for judgment on May 3, 2010. Cumberland appealed. The Appellate Division made short work of Cumberland's arguments, finding coverage under the standard mortgagee clause and upholding the trial court's judgment in an opinion dated June 13, 2011.
The case is notable for the reiteration of the definition of "increase in hazard." The appellate court quoted from the N.J. Supreme Court opinion in Dynasty, Inc. v. Princeton Ins. Co., 165 N.J. 1 (2000) that "[A]n increase in hazard takes place when a new use is made of the insured property, or when its physical condition is changed from that which existed when the policy was written, and the new use or changed condition increases the risk assumed by the insurer."
Consider this timeline: 39 months between claim and appellate opinion. The carrier is liable for the ACV of $133,004, just as it was at the inception of the claim. Its only additional real cost is its attorney's fee.
So....Merrimack tries the "deny and delay" game and loses big time. Cumberland does the same and escapes extra-contractual damages in a case where it clearly could have been found so liable under Pickett v. Lloyd's, 131 N.J. 457 (1993), since its denial was not fairly debatable as evidenced by the insured prevailing on a motion for summary judgment. Moral of the stories: The insured's choice of counsel is critical and very definitely can affect the outcome of the case. Retaining knowledgeable, competent counsel is key!
Be watchful for more of the "delay" game, whether or not accompanied by a specious denial, now prevalent among insurance carriers. Sometimes the appearance of counsel is enough to get the claim back on track. Other times, it may be necessary for the insured to pursue a lawsuit, keeping in mind the possibility of obtaining consequential damages, including counsel fees, if the carrier is found to have exercised bad faith.
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